Employee Turnover: Will Money Help Retaining Employees?

Key Points

General compensation and financial rewards alone may have a limited impact on employee turnover.

Rewards beyond pay (e.g. benefits, career or growth opportunities, and training) may have a larger effect on employee turnover than money.

Generally, when organizational leaders detect a problem with employee turnover, i.e. when too many workers or key performers leave the company, they look for options to retain these key employees and to prevent others from leaving.

Just spending more on compensation is a weak solution, here’s why

The next time you hear comments like “we invest a lot in employee compensation because we want to keep a low employee turnover rate” your Spider-Sense should be tingling.

We summarized a recent meta-analysis by Rubenstein et al. (2017), a major review of 316 studies on the causes of employee turnover. Each of these studies included hundreds of participants, belonging to a broad array of industries. Indeed, this is probably the best available scientific evidence on the topic at the moment, and is a must-read for those who wish to better understand the link between employee turnover and pay.

One of the key findings of this study is that pay (both base salary and bonuses) has only a small-to-moderate negative effect on employeeturnover. This means that:

1) people paid less are only a little more likely to leave than if they were paid more, and

2) if people are leaving, giving them a raise will only work to a limited degree.

There is a myth that one of the main reasons why people leave is money. Now that we know that that is only partially true, what can we focus on instead?

Going beyond pay: here’s where to start

Of course organizations provide many types of rewards beyond pay. Benefits and development opportunities have consistently been found to have a larger effect on employee turnover than money. Benefits may include paid time off, scholarships, and childcare subsidies. Other rewards relate to development and career opportunities, like tuition discounts, training, coaching/mentoring, and exclusive access to internal job postings. As a general evidence-based principle, we can conclude that employees receiving more training, development opportunities, or benefits are less likely to leave than those who do not receive these additional benefits.

Takeaways for your practice

When it comes to an employer’s value proposition, managers can manipulate a variety of factors besides pay, starting with other types of rewards, as outlined in the graphic below. In the field of HR, these types of strategies are becoming known as Total Rewards. Thus, employers can use Total Reward strategies to maximize the value they create for their people.

This Evidence Summary focused on the link between compensation and benefits practices and employee turnover. For a broader overview of the main causes of employee turnover and how to deal with this thorny issue from an evidence-based perspective, check out this Evidence Summary.

We critically evaluated the trustworthiness of the study we used to inform this Evidence Summary. We found that the design of the study was moderately appropriate (70% trustworthiness level) to demonstrate a causal relationship, such as effect or impact. This means that there is a 30% chance that alternative explanations for these results are possible, including random effects.

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Paolo has a MS in Work, Organizational and Personnel Psychology from University of Bologna (IT) and has recently studied Industrial Relations at Università Cattolica in Milan (IT). He strives to learn always more about the future of work and believes the future of HR is in Evidence-Based Management. From the age of 11 he plays acoustic and electric guitar, and is still unable to decide which one he loves the most.